Stockman looks to take Springs private

Don Hogsett, February 26, 2001

FORT MILL, SC — Casting a strong vote of confidence in a battered U.S. textiles industry, investor David Stockman has joined forces with the founding Close family in a bid to buy out textiles giant Springs Industries Inc. and take the company private in a landmark deal valued at roughly $1.2 billion.

The implications of the deal, and Mr. Stockman's involvement, are potentially transforming for both Springs and an entire industry that has been swamped by imports, staggered by wrenching change and pilloried by Wall Street over the past two years.

With a barrel full of cash at its disposal, a strong mandate for rapid growth, and no longer constrained by the prying eyes of Wall Street, Springs is likely to become far more aggressive in making acquisitions as it takes a new leadership role in a rapidly changing textiles environment. Long criticized for its conservative fiscal policies and for being too slow to 'pull the trigger,' a financially strong and newly energized Springs is positioning itself to become a powerhouse consolidator, able to transform the very landscape of the industry as it capitalizes on the weakness of its competitors and the relatively cheap prices that textiles companies are fetching, all in a low interest-rate environment.

The prime mover in the deal, Mr. Stockman, the former Reagan White House budget director and the father of "trickle-down economics," first approached Crandall Bowles, Springs chairman and ceo, more than six months ago with the idea of joining forces to buy out the company and take it private. In an industry not widely regarded for keeping its secrets, Springs and Mr. Stockman kept a tight lid on the deal, with not a word leaking out until they chose to go public with the news last week. Once the deal is complete, in about three to five months time, Mr. Stockman will own a 45 percent stake in the major mill, and members of the Close family will have increased their holdings to 55 percent from a current level of Spring.

Something of a perplexity is Mr. Stockman's long fascination, which extends back more than a decade, with one of America's oldest and most troubled "smokestack' industries. Over the past several years, before ofunding Heartland, Mr. Stockman was a senior managing director of The Blackstone Group, a private investment company, and there led investments in Collins & Aikman, Haynes International and Imperial Home D,cor Group.

Under the terms of the complex financial transaction that Mr. Stockman and the Close family have together engineered, Heartland and the Close family will buy all 17.9 million outstanding shares of Springs at $44 a share, for a total purchase price of $787 million. In addition, the Close family and Heartland will assume about $372 million in debt, including deferred compensaiton and outstanding stock options.

Heartland will put in $225 million, and the rest of the money to finance the deal will be borrowed from J.P. Morgan Chase & Co.

The $44 purchase price represents a 26 percent premium over the average share price for the past month; and a 41 percent premium over the average for the last three months.

As part of the transaction, the Close family will sell a part of its Springs stake to Heartland for $50 million. And once the deal is completed, the currently outstanding 17.9 million shares will be converted into 11 million shares of new Springs stock. The Close family will end up with six million shares, increasing its ownership stake to 55 percent of the company, and Mr. Stockman will own five million shares, or 45 percent of the company.

While Springs management declined to be interviewed for this story, a company spokesman, Betty Turner, vice president of public affairs and a member of the Executive Committee, told Home Textiles Today that the Close family is unanimous in its support of the deal, assuring it will go through without a hitch.

And even though the bank loan used to finance the deal will increase the company's debt load, Springs will be left with plenty of breathing room, said Turner, generating a cash flow of more times three times interest expense — leaving Springs with a far stronger balance sheet than any of its competitors, even after the buyout. And more to the point, it guarantees that Springs will have plenty of cash available to make the acquisitions and generate the kind of sales and earnings growth that will be needed to justify the landmark deal.

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